Paper 3.1 – Hot Topics for June 2007 exams

Audit and Assurance Services

Paper 3.1 – Hot Topics for June 2007 exams

For 3.1, the hot topics for this coming June 2007 exams include:

a) Business risk identification (see past exam papers from June 2003 to Dec

2005). Prepare for identification of business risks and how the company

should manage the risks or what internal controls will help to reduce those

risks. See June 2003 Q2 and Dec 2004 Q1. Also linking business risks to FS

risks like Dec 2003 Q1a.

b) Almost likely a question on identifying principal audit risks/financial

statement risks. See past papers (plenty of them esp. the ones in 2006). Would

expect maybe the same question for financial statement risk as in June 2006

Q1b)

c) Group audit and acquisition. Impact of an acquisition on the audit (see past

year exam like Pilot Q1, Dec 2001 Q1). Include audit strategies/approaches.

See June 2005 Q2 and June 2006 Q2 on due diligence and what factors to

consider before accepting the engagement. Though appeared recently, may

come back again!

d) Planning is important. Planning issues to consider – See June 2002 Q2a, Dec

2002 Q1a. Calculate planning materiality as in June 2006 Q1a)

e) Auditing prospective financial information, PFI (see Dec 2002 Q2), including

reporting on PFI. Take note!

f) Quality controls – practice management, setting of fees, paying commission

for referrals. See Dec 2001 Q2.

g) Working papers – See article in Feb 2007 student accountant magazine. Very

important. The article already stated the possible question she will ask. My

question is “Explain the reasons for preparing and keeping working papers and

the importance of reviewing them”. Read, understand and memorise!

h) Insurance (define PII and FGI, factors affecting the amount of cover, adv and

disadv of insurance).

i) Accounting problems/issues (the usual Q3) - Important areas include leases,

deferred tax, related parties, earnings per share, provision, government grants,

impairment, investment property, going concern.

j) Ethical issues facing the auditor – practice lots of Q5 and take note of

confidentiality. (Identify circumstances in which the disclosure is permitted or

required and discuss the factors, which may justify disclosure under public

interest)

k) Assurance and other services – review, agreed upon procedures. Explain why

agreed upon and compilation engagements do not (usually) meet the

requirements for an assurance engagement and illustrate the form and content

of a report of factual findings

l) Ownership of documents/books and working papers. Explain the general

principles governing the ownership of and right to access to documents and

papers. Explain the legal right of lien and describe the circumstances in which

it may exercised. The extent to which clients and third party may have access

to documents and papers.

m) Responsibility for summarized financial statements , financial reporting on the

internet (see Dec 2003 Q4bii)

n) Reporting – The usual Q4 audit report. But must also be prepared for

Review/Agreed upon procedures and reporting. (see item k above)

o) Outsourcing of accounting function to service organization and it’s impact on

the conduct of the audit (relying on service organization)

p) Identify circumstances in which auditor may have legal liability and explain

the other criteria for legal liability to be recognized. Distinguish between

liability to client and liability to third party. Lastly, discuss the advantages and

disadvantages of audit liability claims being settle out of court. (this section

never being examined, maybe a Q6 this June??)

q) Environment and the auditor (Pilot Q6). Small company audit exemption. Any

recent article by Kim? If yes, must study that. If no article, do not attempt Q6.

Do Q4 instead.

THE END